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2015 (1) TMI 303 - AT - Income TaxAddition of contract receipts difference in profit and loss account and 26AS figures - Held that - The assessee has not produced its books of account, bills vouchers, etc. either before AO or before CIT(A) - there is a difference of ₹ 8,16,92,576 between the contract receipts shown by assessee in the P&L A/c and as mentioned in 26AS statement - Assessee has tried to reconcile the difference by explaining that the amount represents the provision entry made by the main contractor M/s Vishwa Infrastructures and Services Pvt. Ltd. assessee contended that the amount received from the entire contract works has been shown in the AY 2010-11 and 2011-12 - If the claim of assessee is found to be correct, then, there will be no justification in including the amount of ₹ 8,16,92,576 in the contract receipts for the AY as such inclusion would result in taxing the same income twice - a search and seizure operation was conducted in case of M/s Vishwa Infrastructures and Services Pvt. Ltd. thus, the matter is to be remitted back to the AO for verification of actual amount received by assessee towards sub-contract work entrusted by M/s Vishwa Infrastructures and Services Pvt. Ltd. Decided in favour of assessee. Estimation of profits @ 8.5 % - Held that - Assessee though in the ground has mentioned that net profit rate of 8.5% has been estimated, however, on perusal of the order of first appellate authority, it is quite evident that he has directed to estimate the profit at 8% - not only during the survey operation but also during the assessment proceeding, assessee itself made a request to estimate the profit at 8.5% on the gross contract receipts - AO while completing the assessment has estimated profit at 8.5% by accepting assessee s request but the CIT(A) has reduced it to 8% - the order of the CIT(A) is upheld Decided against assessee.
Issues Involved:
1. Assessment of contract receipts at Rs. 19,17,08,176 instead of Rs. 12,05,38,441 as disclosed by the assessee. 2. Estimation of profit at 8.5%. Detailed Analysis: Issue 1: Assessment of Contract Receipts The primary contention revolves around the discrepancy between the contract receipts reported by the assessee and those recorded in the 26AS statement. The assessee, a partnership firm engaged in executing works contracts, filed its return of income declaring total income of Rs. 57,76,751. However, the Assessing Officer (AO) noted a significant difference between the contract receipts shown in the Profit & Loss Account (Rs. 12,05,38,441) and the 26AS statement (Rs. 19,17,08,176). The assessee attributed this difference to provisional entries made by M/s Vishwa Infrastructures and Services Pvt. Ltd., which were later reversed. The AO rejected this explanation for several reasons, including the failure of M/s Vishwa Infrastructures to comply with a notice under section 133(6) of the IT Act, the lack of substantiation for the provisional entries and their subsequent reversal, and the non-production of the assessee's books of account. The CIT(A) upheld the AO's decision, noting that the assessee was following the mercantile system of accounting and failed to provide a reasonable explanation for not disclosing the amounts in question. Consequently, the CIT(A) confirmed the AO's assessment of the contract receipts at Rs. 19,17,08,176 and allowed the AO to compute the net profit on this amount. Upon appeal, the Tribunal noted that the assessee did not produce its books of account, bills, or vouchers. The Tribunal also observed that the differential amount of Rs. 8,16,92,576 was due to provisional entries made by the main contractor, which were reversed in the subsequent financial year. The Tribunal remitted the matter back to the AO to verify the actual amount received by the assessee and to ensure that the differential amount was not taxed twice if it was included in the subsequent assessment year. Issue 2: Estimation of Profit The second issue concerned the estimation of net profit at 8.5% on the gross contract receipts. The assessee initially requested the AO to estimate the profit at 8.5%, which the AO accepted. However, the CIT(A) reduced the estimated profit rate to 8%. The assessee argued that the profit rate should be further reduced to 5%, citing a decision of the ITAT in a similar case. However, the Tribunal upheld the CIT(A)'s decision to estimate the profit at 8%, noting that the assessee itself had initially requested a rate of 8.5% and had not produced sufficient evidence to warrant a lower rate. Conclusion The Tribunal partially allowed the assessee's appeal for statistical purposes, directing the AO to verify the actual contract receipts and ensure no double taxation. The Tribunal upheld the CIT(A)'s estimation of net profit at 8%, rejecting the assessee's request for a reduction to 5%. The judgment emphasizes the importance of substantiating claims with proper documentation and the adherence to the mercantile system of accounting.
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